Earthquake hitting major city can create world depression.

[touchring]

I've been talking about this for sometime, a large earthquake hitting either Tokyo/Osaka region, California or Hebei province (Beijing) can create a world depression that would plunge oil to $30. Depending on where it hits, casualties can run into the millions of people (if it hits Hebei province).

Even a wave that hit off the coast of sparsely populated Sendai can cause so much havoc, imagine if the epicentre of that megathrust moved south 400 miles, casualties would be in the hundreds of thousands and we will be in depression today.

Since the Indonesian Sumatran megathrust in 2004, there has been a height in seismic activity and that activity has spread beyond the remote islands in Indonesia.

Unlike a financial crisis, no amount of money printing or central bank intervention can prevent the fallout from such a disaster.

[c1ue]

Re: Earthquake hitting major city can create world depression.

Rant 'N Rave, and rightly so.

While the devastation from such an event would be truly horrific, on the other hand it would be a wonderful excuse to print like mad, spend on infrastructure, etc etc.

Thus to say an economic depression would result is indeed specious.

The economic problems Japan is having is because of Japan's government's encouragement for the Japanese in Kanto to do less: use less electricity. In doing so, they don't go out to restaurants. They don't buy as many things. They don't invest.

In contrast past disasters in developed nations saw massive outpouring of spending and economic activity.

[jiimbergin]

Re: Earthquake hitting major city can create world depression.

I've been talking about this for sometime, a large earthquake hitting either Tokyo/Osaka region, California or Hebei province (Beijing) can create a world depression that would plunge oil to $30. Depending on where it hits, casualties can run into the millions of people (if it hits Hebei province).

Even a wave that hit off the coast of sparsely populated Sendai can cause so much havoc, imagine if the epicentre of that megathrust moved south 400 miles, casualties would be in the hundreds of thousands and we will be in depression today.

Since the Indonesian Sumatran megathrust in 2004, there has been a height in seismic activity and that activity has spread beyond the remote islands in Indonesia.

Unlike a financial crisis, no amount of money printing or central bank intervention can prevent the fallout from such a disaster.

I have not seen any evidence that there has been such a large increase in seismic activity.

[astonas]

Re: Earthquake hitting major city can create world depression.

How about, oh, I don't know, a major hurricane hitting New York City? ;-)

As far as spending after a disaster goes, isn't that counter to the "broken window fallacy" EJ described in a recent commentary? Doesn't that just mean money is being spent on infrastructure that could otherwise be spent more productively?

[Kadriana]

Re: Earthquake hitting major city can create world depression.

How about, oh, I don't know, a major hurricane hitting New York City? ;-)

As far as spending after a disaster goes, isn't that counter to the "broken window fallacy" EJ described in a recent commentary? Doesn't that just mean money is being spent on infrastructure that could otherwise be spent more productively?

I was wondering what sort of flooding they might see on New York and how that would affect the city. So many people use the subways to travel and if the streets end up covered in debris, they could have issues just getting around.

[lakedaemonian]

Re: Earthquake hitting major city can create world depression.

Having suffered back to back major earthquakes in Christchurch in the last 12 months, I often wonder if the broken window fallacy applies to us.

With a fairly high level of international re-insurance cover does the broken window fallacy still apply?

Or does the broken window fallacy assume a closed domestic insurance and re-insurance network?

In any case, we are finding things hard going here. We find out in a few weeks if our beachside suburb will be eliminated/eminent domain due to infrastructure damage requiring us to move.

We expect to see a restrained building boom and a distorted market moving forward.

To me I wonder if all this inventory and capacity taken off the market will help us get thru this global mess a bit sooner rather than later.

[touchring]

Re: Earthquake hitting major city can create world depression.

Rant 'N Rave, and rightly so.

While the devastation from such an event would be truly horrific, on the other hand it would be a wonderful excuse to print like mad, spend on infrastructure, etc etc.

Thus to say an economic depression would result is indeed specious.

The economic problems Japan is having is because of Japan's government's encouragement for the Japanese in Kanto to do less: use less electricity. In doing so, they don't go out to restaurants. They don't buy as many things. They don't invest.

In contrast past disasters in developed nations saw massive outpouring of spending and economic activity.

Can you imagine the outcome if Richter scale 9 megathrust happened off the bay of Tokyo instead of the sparsely populated Sendai? Death toll will be in the hundreds of thousands of people. Compare that to Sept 11. I wouldn't underestimate the wrath of mother nature.

[c1ue]

Re: Earthquake hitting major city can create world depression.

Can you imagine the outcome if Richter scale 9 megathrust happened off the bay of Tokyo instead of the sparsely populated Sendai? Death toll will be in the hundreds of thousands of people. Compare that to Sept 11. I wouldn't underestimate the wrath of mother nature.

And a mile wide asteroid could strike the Atlantic Ocean - crushing Europe and the US East Coast under boiling mud and tsunamis.

And a Category 5 Hurricane could strike in the Bay of Bengal, pushing a 20 meter tidal surge in front of it, drowning most of Bangladesh and clogging the Ganges with 100 million bodies.

And the Reelfoot Rift could cut loose with an 8+ magnitude earthquake, instead of 3 mid-7 level earthquakes, affecting 2/3rds of the population of the United States.

Again, not clear what your point is.

[chedir007]

Re: Earthquake hitting major city can create world depression.

Jim,

How about this source- although I am not entirely sure about the legitimacy of "European Royal Society".

It does have a graph of M8+ earthquakes since 1902 from supposedly, USGS.


http://arxiv.org/ftp/arxiv/papers/1104/1104.2036.pdf

[touchring]

Re: Earthquake hitting major city can create world depression.

And a mile wide asteroid could strike the Atlantic Ocean - crushing Europe and the US East Coast under boiling mud and tsunamis.

And a Category 5 Hurricane could strike in the Bay of Bengal, pushing a 20 meter tidal surge in front of it, drowning most of Bangladesh and clogging the Ganges with 100 million bodies.

And the Reelfoot Rift could cut loose with an 8+ magnitude earthquake, instead of 3 mid-7 level earthquakes, affecting 2/3rds of the population of the United States.

There were 11 magnitude 8.5 and above earthquakes for the entire 20th century. In the first 11 years of this century, there is already 5 of them.

As for magnitude 9 and above, there are 3 in the entire 20th century, and 2 in just the first 11 years of this century.

May 22, 1960 19:11 Valdivia, Chile see 1960 Valdivia earthquake -38.24 -73.05 5,700 9.5 Mw USGS 01964-03-28March 28, 1964 03:36 Prince William Sound, Alaska, United States see 1964 Alaska earthquake 61.02 -147.65 125 9.2 Mw USGS 01952-11-04November 4, 1952 16:58 Kamchatka, Russia see Kamchatka earthquakes 52.76 160.06 9 Mw USGS December 26, 2004 00:58 off west coast northern Sumatra, Indonesia see 2004 Indian Ocean earthquake 3.30 95.87 230,000 9.1 Mw (USGS) March 11, 2011 05:46 Japan Region see 2011 Tōhoku earthquake 38.322 142.369 15341 9.0 Mw (USGS) Centred closest to Enoshima, Miyagi, at a depth of 32 kilometres. Most damage occurred in Sendai. Damage occurred in Fukushima, Iwate and Miyagi due to tsunamis. [58

http://en.wikipedia.org/wiki/List_of...ry_earthquakes
http://en.wikipedia.org/wiki/List_of...ry_earthquakes



I'm no scientist or engineer but it is common sense that if a tectonic plate has moved significantly on one end, the other ends will become more unstable. What is the chance of a 9 hitting off the coast of British Columbia or an 8.5 hitting California, definitely significantly higher in the next 10 years than the last 500 years.

In my opinion, especially worrying is the Cascadia subduction zone.

Again, not clear what your point is.

My point is, I'll refrain from all risky bets.

The Cascadia subduction zone can produce very large earthquakes ("megathrust earthquakes"), magnitude 9.0 or greater, if rupture occurs over its whole area. When the "locked" zone stores up energy for an earthquake, the "transition" zone, although somewhat plastic, can rupture. Great Subduction Zone earthquakes are the largest earthquakes in the world, and can exceed magnitude 9.0.

Earthquake timing

The last known great earthquake in the northwest was in January 1700, the Cascadia Earthquake. Geological evidence indicates that great earthquakes may have occurred at least seven times in the last 3,500 years, suggesting a return time of 300 to 600 years. There is also evidence of accompanying tsunamis with every earthquake, and one line of evidence for these earthquakes is tsunami damage, and through Japanese records of tsunamis.[10]

The next rupture of the Cascadia Subduction Zone is anticipated to be capable of causing widespread destruction throughout the Pacific Northwest.[citation needed]

Other similar subduction zones in the world usually have such earthquakes every 100 to 200 years; the longer interval here may indicate unusually large stress buildup and subsequent unusually large earthquake slip.[citation needed]

[astonas]

Re: Earthquake hitting major city can create world depression.

My point is, I'll refrain from all risky bets.

I don't see any bet in these times that is NOT risky. Keep everything in cash or treasuries? Inflation and currency risk. Keep everything in gold? There is still the risk that economic crisis may resolve faster & more easily than we think, with a world currency arising without the associated birthing pains iTulip forecasts.

I don't challenge your assessment of earthquake or other natural disaster risks. I just don't see any way to avoid the attendant investment risk.

But I'm always open to ideas. What are you suggesting is a prudent path in the face of the risks you describe?

[touchring]

Re: Earthquake hitting major city can create world depression.

I don't see any bet in these times that is NOT risky. Keep everything in cash or treasuries? Inflation and currency risk. Keep everything in gold? There is still the risk that economic crisis may resolve faster & more easily than we think, with a world currency arising without the associated birthing pains iTulip forecasts.

I don't challenge your assessment of earthquake or other natural disaster risks. I just don't see any way to avoid the attendant investment risk.

But I'm always open to ideas. What are you suggesting is a prudent path in the face of the risks you describe?

This so called "inflation" is mostly generated by the Chinese. If you look at their property bubble and China taking half of all commodities produced in the entire world, you will know how much money has been printed. With rate hikes and non-stop tightening, there will come a time when this inflation will change into deflation.

To understand how long this inflation will last, you must first understand politics in China.

Unlike America, China is not run by bankers or wealthy people. China is run by the Communist party, which still has many hardliners in their 70s and 80s and whose primary objective is to ensure that the glory of Mao continues. The economy is not the priority. Reducing the inequality in income is the priority, even if they had mismanaged this at the beginning.

Having said that, I do not doubt the resolve of the communist party in crushing this "inflation". The communist party does not mince its words, if they say they will fix "inflation", they will do it, even if it means imposing a moratorium on bank loans altogether. They will do everything to achieve this objective, including closing down the capitalist markets.

North Korea did a reset to the capitalist system, out of the blue, everyone starts with almost zero in their bank accounts and today they survived. The Chinese will definitely send researchers to study that experiment.

[astonas]

Re: Earthquake hitting major city can create world depression.

In any case, we are finding things hard going here. We find out in a few weeks if our beachside suburb will be eliminated/eminent domain due to infrastructure damage requiring us to move.

First of all, I'm sorry to hear of your loss. I hope that your circumstances improve, and that your community is restored to you.

I would certainly never suggest that earthquakes or natural disasters are not traumatic and that they aren't capable of causing immense destruction and suffering.

Having suffered back to back major earthquakes in Christchurch in the last 12 months, I often wonder if the broken window fallacy applies to us.

With a fairly high level of international re-insurance cover does the broken window fallacy still apply?

Or does the broken window fallacy assume a closed domestic insurance and re-insurance network?

[...]

We expect to see a restrained building boom and a distorted market moving forward.

To me I wonder if all this inventory and capacity taken off the market will help us get thru this global mess a bit sooner rather than later.

You raise very good questions, and I am certainly not an expert on re-insurance. However, I would guess that any answers really come down to a matter of which perspective you choose. The global nature of such insurance institutions seems to point to the fact that specific affected regions would indeed likely benefit from the injection of capital that might not otherwise be available to them. On the other hand, if one takes a global perspective there is still a net reduction in the capital available for other economic activity whenever an act of mass destruction takes place. The question is, for a given community, which factor dominates, and how completely?

I suppose any real answer would have to depend on how intimately connected a given community is with the global economy. I can imagine places at both ends of the spectrum, both where the local economy is intimately connected to global economic activity (a hot-dog vendor on Wall Street might see business rise and fall with global economic activity) and where it is completely isolated (a village that is mostly self-sufficient, perhaps by following older, more traditional farming methods).

It seems logical that the more isolated your economy, the more you stand to benefit from insurance, when the ultimate insurer is outside of your community. In the event of a global economic collapse, however, it is hard to imagine that the vast majority of communities will not be in some way affected.

So, like so many questions on iTulip, it eventually boils down to: How much of a doomer are you? ;-)

[astonas]

Re: Earthquake hitting major city can create world depression.

Having said that, I do not doubt the resolve of the communist party in crushing this "inflation". The communist party does not mince its words, if they say they will fix "inflation", they will do it, even if it means closing the markets or imposing a moratorium on bank loans altogether.

I'm just seeking clarity here. To me your arguments against inflation being sustained seem to imply that this is not a risk you are worried about.

Are you therefore recommending holding your assets in cash as a way to avoid the financial risks associated with a major natural disaster?

If so, which currency? Do you believe that the expectation value (probability multiplied by impact) associated with a natural disaster exceeds the combined expectation values associated with both currency risk and inflation risk?

Essentially, that is what this debate seems to be about. If the answer to the second question is yes, then by all means hold cash. If no, then it is most appropriate to look for other investments.

For those trying to decide, I would recommend the excellent book by Daniel Gardner: "The Science of Fear: Why we fear the things we shouldn't -- and put ourselves in greater danger"

It clearly explains why the concerns that have a vast emotional impact - such as widely publicized natural disasters - are the source of much of the irrationality inherent in human beings. Our minds evolved in a world where all emotional inputs were immediately present, where there was no mass media. Therefore, we evolved for those traumatic inputs we receive to completely dominate our thinking, as they are all treated as personal, immediate, and existential risks. This excessive weighting means that our evaluation of risks regarding such things should always be subordinated to more rigorous analysis if we wish to make the correct choice. In this case, it appears that the problem to solve is this:

(1) What is the probability of losing money to a natural disaster, multiplied by the percent of money you would lose.
(2) What is the probability of losing money to inflation, multiplied by the percent of money you would lose.
(3) What is the probability of losing money to the savings currency losing value w.r.t. the ultimate spending currency, multiplied by the percent of spending power you would lose.

If (1) > (2)+(3), then hold cash.

My estimates, even with the information you have cited, have caused me to conclude that I should not to hold cash.

[touchring]

Re: Earthquake hitting major city can create world depression.

I'm just seeking clarity here. To me your arguments against inflation being sustained seem to imply that this is not a risk you are worried about.

This is because I do not believe there is real inflation at least for the moment. The "inflation" you are seeing is just the real estate bubble in China driving commodity prices up.

Bubbles don't last forever, and just like the American real estate bubble, prices will fall once it ends.

Of course bubbles can last a much longer time in China.

As for the loans given out by Chinese banks, they are almost gone for good.

If you know a little about how banking works in the third world. The bank officer takes a cut, the appraisal officer is given a cut to jack up the project valuation by 100% so that a "60% loan" will cover,

1. the 5% cut given to the bank officer who approved the loan,
2. the 5% cut given to the appraisal officer,
3. the 10% cut required by the 'middleman', the go between the banker and the borrower,
4. the "cost of building the project",
5. any excess will be extra cash for the borrower.

From the cost of building the project, the SOE officer will invite his friends and relatives to bid for the project, and probably take 20% cut. And because the contractor had to pay a big kickback, he had to use the cheapest material to build the project, so the infrastructure would start to breakdown after 10 years instead of 30 years. One could imagine how little is left of the actual value of the collateral after everyone had taken their share.